Contractors accept numerous contractual obligations in construction contracts. For example, contractors generally agree to perform the work in accordance with the plans and specifications, to perform the work in a workmanlike manner, and to complete the work by an agreed-upon date. They also agree to pay their suppliers and subcontractors (to avoid liens on the property), to provide notice of needed changes to the design documents, and, in some cases, to perform the contracted work for an agreed price, even if their actual costs exceed that price. The liabilities that are created by these obligations are considered the normal risks of doing business as a contractor.
An additional type of contractual liability exposure involves the assumption of another party’s legal liability for losses in connection with its work on the project. For example, project owners typically require the general contractor to “indemnify and hold harmless” the owner for third-party liability they incur as a result of the contractor’s work for them. General contractors typically do likewise with respect to subcontractors. The notion behind this risk transfer is that the party performing the work should bear responsibility for any injury or damage that is incurred by third parties in connection with that work.
It's important to work with an insurance agency that specializes in insurance for contractors because it can be confusing. Call our office to have a contractor insurance specialist to review your account and take the confusion out of your life.
General liability insurance provides protection against two types of financial loss arising out of a lawsuit against the company. First, it covers damages awarded to a third party because of injury or damage for which the insured is legally responsible, including loss of use of property claims. In addition, it covers the cost of defending the insured against the charges alleged in the suit, including attorney fees, investigation costs, and other legal expenses. Defense costs can amount to huge sums even when the insured is cleared of any legal liability for damages. Together, the indemnity (payment of damages on the insured’s behalf) and defense (payment of legal expenses) obligations comprise the insurer’s key contractual promises to the insured.
Liability loss exposures arise out of legal wrongs. The three broad classes of legal wrongs are crime, breach of contract, and tort, each being addressed by a different branch of the law. General liability insurance concerns itself with tort liability. Tort law protects the rights of individuals from civil wrongs and generally provides monetary remedies to tort victims. In some instances, a criminal act may give rise to civil as well as criminal liability, with monetary awards as remedies. For example, while fraud is punishable under criminal law, the individual victims may also be permitted to sue for monetary damages, such as restitution of losses and even non-economic damages such as punitive damages or emotional distress. Whether liabilities involving criminal activities are covered by general liability insurance often comes down to whether the insured had knowledge of the criminal actions and intent.
In addition to common law, contractual agreements also create legal duties, such as an agreement to perform in a certain manner, to complete a project in a specified length of time, to deliver a quality product, or to assume responsibility for liabilities that legally fall on another contracting party. Any violation or breach of a contractual agreement is a civil (as opposed to a criminal) wrong, with an award of monetary damages as a potential remedy. Many breach of contract claims are confined to allegations of financial or business loss that are not of a type that are covered under a general liability policy. For example, liability based on the failure to perform the contracted work is usually not insurable. Other contractual liabilities—including the assumption of the other party’s legal liability to a third person or organization—are often covered.
The history of Lloyd’s begins at Edward Lloyd's coffeehouse in 1688, where he attracted a clientele of merchants, particularly ship owners with vessels and cargoes needing protection. Mr. Lloyd’s establishment quickly evolved into a meeting place where businessmen sought brokers to place insurance with wealthy, reputable men. Character and integrity were important because the persons (called underwriters) who agreed to invest in the ships and cargoes put their personal fortunes at risk in order to pay their share of any claim. If a ship’s voyage was successful, the underwriter would share in the profits.
Note: The term underwriter came from the practice of persons agreeing to insure a ship and/or its cargo by placing his signature under the name of the vessel he was willing to sponsor.
Lloyd's of London has long been identified with British history and the growth of worldwide commerce. It is an international insurance market, located in London, whose members cooperate with each other, compete with each other and, of course, compete against other insurance organizations. There are four major markets at Lloyd's: Marine, Non-Marine, Aviation and Motor. Lloyd’s also has a smaller market that handles short and long term life insurance. Lloyd's is an important player in the contractors insurance and general liability market.
Insurance is not placed with the Corporation of Lloyd's, a society incorporated under Act of Parliament of 1871. The Corporation provides the premises, shipping information services, administrative staff and other facilities that enable the Lloyd's market to transact insurance business. The actual insurance transactions are handled by thousands of Lloyd's members. About one-third of the membership is actively engaged in the market. The remaining members provide capital, but do not actively place business in any of Lloyd’s insurance markets. Only the underwriting members may accept insurance business on behalf of a syndicate.
Historically, a policyholder with a valid claim could be certain that the claim would be paid, whatever the cost to the member who accepted the risk. Formerly, every underwriting member was responsible up to the full extent of his personal assets for his share business. If his personal assets were not enough, Lloyd's would make any deficit out of its reserve funds.
Today, Lloyd's liability is more conventional, limited in the same manner as traditional insurance companies. The change was necessary due to its long-term problem in handling losses associated with asbestos claims. Lloyd’s created a separate entity to handle that large source of loss and many organization members became inactive (no longer writing new business) in order to meet their payment obligations.
While Lloyds’ number of active memberships has substantially decreased; they are made up of, primarily, corporate entities. Lloyd’s capacity to write business in the global marketplace is substantial and growing. Lloyd’s will continue to be an important part of the insurance market, especially the contractors insurance and general liability market.
General contractors (GCs) are the playmakers for any significant construction project, taking responsibility for all key operations such as construction assignments, job site supervision, and activity coordination. Typically, GCs have their own construction specialty (example: malls, restaurants, office buildings, stadiums, arenas, parks, etc.). GCs are often larger concerns with a tremendous amount of expertise in their area of specialty. The level of experience is critical since it permits a construction project to be led efficiently and more successfully.
GCs may assign/award work in a variety of ways, such as:
· supplying all of the specialty contractors for an entire project, such as the
excavator, electrician, heating contractor, cement contractor, plasterer, and so
· using their own, permanent employees for certain jobs, and
· subcontracting the remaining tasks to other, smaller construction specialists
After land has been purchased and the design/architectural work has been done, the general contractor proceeds, usually beginning with site preparation, through excavation, foundation-laying, framing, and finishing until the building or project is completed. The general contractor provides the materials and equipment according to the applicable design specifications (usually provided by the architect). The GC must comply with all local and state ordinances, codes and zoning requirements. This includes purchasing the necessary permits and obtaining the necessary surety bonds. General Contractor Insurance also must be in order, specifically General Liability Insurance.
GCs may either be hands-on operators, who actively take part in construction, or they may be "paper" operators, overseeing the actual work of other contractors. The general contractor may rent, lease or borrow equipment (including equipment operators) for use by subcontractors. Since the general contractor is responsible for the job site, he/she should be aware of the proper use of the equipment during construction. Is the equipment being used as it was designed to be used? Is the equipment's load capacity routinely exceeded? Finally, GCs have many contractual and administrative obligations such as making sure that critical project deadlines are met, that payroll is handled, materials and equipment are obtained and that the project's budget is followed (avoiding cost overruns), proper insurance is maintained by all subcontractors especially, contractors insurance and contractors general liability.
A business that harms another party or damages/destroys property that belongs to another party may be sued or prosecuted. Larger businesses protect against their liability to third parties with a Commercial General Liability (CGL) policy. The CGL is designed to cover a given business that is described within the policy. An insurance company provides a CGL under some assumptions about the type of losses it is willing to cover. One issue that can undermine a CGL is contractual liability. Contractual liability throws the CGL for a loop. It describes a covered business that voluntarily agrees (in writing) to take over someone else's responsibility.
A CGL's design and cost is based on the assumption that it only has to concern itself with the party that is listed on the policy. Taking on some other business' liability means that the policy is being asked to either defend or pay for the injuries or damages caused by an entity that it doesn't "know". Further it is being asked to do so without any additional premium. Therefore, CGLs exclude most instances of contractual liability.
A company that decides to step-in for another company has to make careful arrangements to handle a loss it has assumed. It may try to take care of the situation by endorsing (changing) its CGL by adding the name of the other party as an additional insured. Or, when the insured company is a property owner and the other party is a contractor, the property owner may buy a special form of coverage called Owners and Contractors Protective Liability.
Regardless the coverage arrangement, not every situation will be covered. You need to read the CGL or Owners and Contractors Policy language to determine what situations are insured. A loss has to be a type that is eligible under the CGL or OCP. Further, the contractual arrangement has to be related to the type of operation insured by such policies.
Example: You own a printing company and you, in writing, agree to cover your friend's plumbing business if they are sued by one of your customers. Neither a CGL nor an OCP would help, because the written agreement has no relationship to your operations.
A smart move is to discuss your business relationships with an insurance professional. It’s a solid way to be sure that your business liability is handled efficiently and economically. This often means that the best strategy is to have every party take care of their own insurance needs. ABCContractorInsurance.com is your source for contractor insurance.
Artisan Contractors are smaller operations that work in a variety of settings. They may be involved on large construction projects under the direction of general contractors, operate in smaller residential projects, specialize in installations or work on renovation or remodeling projects.
Artisan contractors are involved in many types of specialties such as plumbing, electrical work, minor excavation, landscaping, heating, air conditioning, painting, roofing, dry-walling, carpentry, remediation services, asphalt/paving, etc. These operations need a full complement of insurance services, such as general liability, inland marine (to protect their tools/equipment), workers compensation, commercial auto, excess liability and commercial property.
There is no standard definition of an artisan contractor. They are typically defined according to an individual insurance company's underwriting rules. The factors typically considered are:
Artisan contractors need knowledgeable insurance professionals to help them identify their protection needs, especially in the areas of handling exposures to the contractor's tools and equipment. Complete information must also be developed concerning losses that may occur on their customer's premises and damage a contractor may cause to property that belong to third parties, but which is in the contractor's possession or control.
It is important to remember that carelessness or thoughtlessness causes a majority of job-site accidents. Often when an accident occurs, it is because someone has failed to recognize the possibility of it happening. Thinking ahead can help in planning to avoid possible hazards. Checking the surroundings at a new job site, and thinking of ways to prevent accidents can help keep the job-site safe. A contractor should be encouraged to:
Consider the work of others on and around the job site. Contractors should be aware of the type of work other contractors are doing, and be sure to make others aware of their job functions.
Address concerns involving the project as a whole, not just the work being done. Contractors working in unsafe conditions or employing unsafe practices can potentially lead to problems for everyone.
Check to be sure that the necessary tools are available to do the job. Defective, worn, or misused equipmentor tools can lead to serious injury or even death.
Immediately replace or repair defective hand tools such as hammers with split handles or screwdrivers with stripped heads.
Inspect electrical tools and power-driven machinery often to make sure all safety features are in place and in proper working condition.
Check electrical tool power cords for frayed or cracked insulation. If defects are discovered, they should be removed from service until repaired.
Be certain ladders are in good condition with no broken, cracked, or missing rungs.
Use personal protective equipment, such as hard hats, respirators, steel-toe boots, and eye protection whenever possible and always when required.
Set up scaffolding with a secure, stable footing. Contractors should not work on scaffolding that is shaking, unstable, or missing any components.
Maintain a clean jobsite. Do not leave debris, dirt, tools, or other objects lying around which may create a tripping/falling hazard.
Use proper safety barriers when needed such as fences, railings, or barricades. Signs should be posted warning people of potential dangers and forbidden entry.
JOB SAFETY should be a paramount concern for you for the protection of your employees and your customers.
To your success!
How Can Contractors Protect Themselves From Costly Litigation?
If a contractor hires a subcontractor to complete any aspect of a job, he/she is acting as a general contractor.
Some things contractors should do include:
1. Always consult legal advice before entering into a contractual relationship.
2. Require each subcontractor to hold the contractor harmless for any acts of
negligence, faulty workmanship or liability associated with the work of each
3. Require all subcontractors to name the contractor as an additional insured on their
insurance policies, specifically the liability portion of the contracts.
(With this provision, a subcontractor’s policy will respond to covered acts by the
subcontractor. This typically includes costly attorney fees. This is an industry
practice. The transfer of liability should include these items. )
4. Be sure all employees understand basic principles of construction law. The overall
theme of these statutes is to provide a workplace that is a safe environment for
employees and the general public.
5. Require all subcontractors to carry limits that are equal to the limits that the
contractor has on his/her policy.
6. Require all subcontractors to provide certificates of insurance naming the
contractor as an additional insured. (This practice provide peace of mind and
evidence that coverage is in place. )
If a contractor is hired by others for a specialized skill or job, then he/she becomes a subcontractor.
Here are some things that should be done.
1. Always consult legal advice before entering into a contractual relationship.
(A subcontractor needs to be aware of the liability being assumed through contracts.)
2. Carefully review contractual language with an attorney, especially the hold harmless
agreement that transfers liability from the general contractor to the subcontractor.
3. Request to be added as an additional insured to the general contractor’s insurance
4. Make sure that insurance programs are updated to remove general contractors for
whom work is no longer being done.
5. Submit copies of any signed contracts to his/her insurance agent for underwriting
AND ALWAYS REMEMBER, THE NAME OF THE GAME IS CYA!!!
To Your Success!
Hold Harmless and Indemnification Agreements, can be critical parts of any
contract. These agreements are drafted to shift the assumption of liability from
one party to another.
The typical parties to an indemnification relationship are the Indemnitor and
Indemnitee. The indemnitor typically assumes any liability or the obligation to
hold the indemnitee harmless from liability.
Hold harmless agreements are often classified as broad form, intermediate form
and limited form. The most common type of hold harmless agreement is the
However, for your information, a brief description of the three
types of hold harmless agreements follows:
Limited Form Hold Harmless Agreements
This type of hold harmless agreement is sometimes referred to as a comparative
fault indemnification agreement. As its name implies, this agreement obligates
the indemnitor only to the extent of his or her own fault.
Intermediate Form Hold Harmless Agreements
In this situation, the indemnitor assumes all liabilities of the indemnitee relating
to the subject matter of the agreement, except where the injury or damage is
caused by the indemnitee’s sole negligence. Any amount of fault on the part
of the indemnitor under an intermediate hold harmless agreement obligates
the indemnitor to indemnify the indemnitee for the total amount of damages.
For example, whether the indemnitor is 10 percent or 90 percent at fault, it
nevertheless must indemnify the indemnitee for 100 percent of the damages.
The only instance in which the indemnitor is relieved of the contractual
obligation to indemnify is when the loss is due solely to the fault of the
Broad Form Hold Harmless Agreements
Broad form hold harmless agreements require complete indemnification of the
indemnitee for all occurrences arising out of the indemnitor’s operations without
regard to fault.
If you are not protecting your business with hold harmless agreements, you are playing with fire. If you would like a copy of a limited form hold harmless agreement send me an email or call the office.
To Your Success!
My friend and sales manager at Nationwide Insurance sends me daily motivational quotes and here is one he sent this morning that I think is very timely for all of us in business.
To Your Sucess!
1. Are you excited?
2. Do you know exactly what you want?
3. Do you know why you want what you want?
4. Do you have a plan?
5. Have you identified your target marketing?
6. Are you clear about what your target market needs and how you will fill
7. Have you laid out your marketing strategy?
8. How are you going to keep your intentions visible at all times?
9. How are you going to keep your priorities and actions in alignment so you
have the greatest chance of creating the results you want in the upcoming
10. What you are going to do to stay emotionally, physically, and spiritually
healthy this year?
Remember, real success in life is not what you achieve. Real success in
life is measured by the quality of your experience as you work to make your
goals a reality.
Woody Allen once said that 90% of life was showing up. That may be true.
However, the 10% of life is how you show up. And how you show up can make
all the difference in the world.
As you begin 2011, please keep the following in mind:
1. Stay focused on the present moment. This is the only place you can ever
actually get anything done.
2. Always come from a place of service. Can I help? is the most fundamental
question you can ask in your business each and every day. Make service your
goal in every interaction. Service is value. People respond to value given
with value returned.
3. Pay attention to what is happening. Everything in life starts with
awareness. Realize that you are not in control of what happens to you, only
your response to what happens. Learn to open your mind to the intentions,
expectations, motivations, actions, non-actions, results, challenges,
opportunities, and possibilities that will be present in each situation you
encounter in the next 12 months.
4. Always tell the truth. Telling the truth is the most efficient way of
managing both your business and your life. There is rarely a "truly"
negative consequence to telling the truth. The truth will always be your
ally if you stay committed to seeing and accepting it.
5. Study everything about your business. Know your market, your associates,
your competitors, your affiliates, your clients, yourself. Know how to spot
a good prospect and how to stay away from a bad one. Know how to work with
people who want to work with you. Know how to find opportunity—it is
present in every situation. Know how to ask for the business.
6. Always follow a plan. Planning isn't convenient, stress is. Having a
sound plan puts your business to work for your versus you working for it. A
well-written business plan is the only real link between your creative
process and the actions that will cause you to reach your goals. Failing to
plan is planning to fail.
7. Be consistent. Pick a core marketing strategy and stick with it. Keep
improving it. And keep doing it over and over again. Most great things are
only accomplished through sustained and continuous effort. Remember,
F.O.C.U.S. stands for Follow One Course Until Successful.
8. Systematize your actions. Systems bring structure and organization to
everything you do. Systems eliminate discretion and randomness from your
business. In many ways, the efficiency of your systems will dictate the
volume of business you do.
9. Be personally accountable for your actions. Invite candid feedback.
Never hide from the truth. Take ownership of your circumstances and
results. Recognize when you are playing the role of the victim. Take
responsibility for your ability to make things happen.
10. Stay open and flexible. The one constant in life is change. You need to
accept the fact that your rapidly changing world requires that you
constantly adapt. You cannot control change, yet you can influence how
change effects your life. Instead of being stressed out by change, turn its
power to your advantage.
11. Strive for a personal sense of balance. Professional balance is the
result of personal balance. Balance is what makes the experience of living
more evident, easy, and enjoyable. Eat right. Exercise. Get more rest.
Meditate. Play. Have fun. Recharge. Take more time off. Simplify. Count
your blessings. Smile. Be positive.
12. Take a long-term perspective on everything you do. Be patient with your
efforts. Patience is having the faith and the confidence to act over the
long term, beginning now, and progressively continuing day after day until
the goal is reached. Having a longer term outlook is what will provide you
with the most effective and satisfying results.
Making 2011 Your Best Year
Great success in life is not so much about what you accomplish as it is
about the experience of your accomplishment.
There are no shortcuts when it comes to building a successful business.
However, there is enormous gratification in showing up each and every day
with a healthy sense of pride, commitment, and respect for the work you do.
Start the new year with a clear sense of what you are wanting to
accomplish. Know it is absolutely within your power to make your goals a
reality. Stay focused on what is in front of you.
Keep the 12 points above in mind at all times and 2011 will be a year like
no other! Make a commitment to these 12 points and hold yourself
Rod Hanks has owned and operated The Hanks Group for 14 years, a diversified insurance agency that focuses on the unique insurance needs of contractors. Although our main focus is contractors insurance, we do offer health, life, and personal lines insurance. Rod can be reached at 214-275-8372 or firstname.lastname@example.org